6 July 2019: In the lead up to the Group of 20 (G20) Finance Ministers and Central Bank Governors’ Meeting, the Organisation for Economic Co-operation and Development (OECD) released data that show that automatic exchange of information on financial accounts is improving tax compliance and delivering concrete results for governments worldwide. Also on international taxation, the 129 members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed on a road map for resolving the tax challenges arising from the digitalization of the economy and committed to work toward a consensus-based long-term solution by the end of 2020.

Data on the Automatic Exchange of Information (AEOI) initiative show that more than 90 jurisdictions have exchanged information on 47 million offshore accounts, with a total value of around EUR 4.9 trillion. AEOI represents the largest exchange of tax information in history and, according to OECD, “the culmination” of more than two decades of international efforts to counter tax evasion.

The OECD analysis also reflects on the AEOI’s impact on bank deposits in international financial centres (IFCs). Between 2000 and 2008, deposits held by companies or individuals in more than 40 key IFCs increased substantially, reaching a peak of US$1.6 trillion by mid-2008. Since AEOI was implemented, deposits have decreased by 25 percent.

The Automatic Exchange of Information Initiative uncovered “a deep pool” of offshore funds that can now be taxed by authorities worldwide.

At the launch of the OECD AEOI preliminary analysis, OECD Secretary-General Angel Gurria observed that the Initiative uncovered “a deep pool” of offshore funds that can now be taxed by authorities worldwide. Voluntary disclosure of offshore accounts, financial assets and income in the run-up to full implementation of the AEOI initiative resulted in more than EUR 95 billion in additional revenue (tax, interest and penalties) for OECD and G20 countries over the 2009-2019 period, an increase of EUR 2 billion since the OECD’s last reporting in November 2018.

Also on resolving tax challenges, BEPS also adopted a ‘Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy’ that outlines a process for reaching a new global agreement for taxing multinational enterprises through two main pillars. The first pillar focuses on potential solutions for determining where tax should be paid and on what basis (“nexus”), as well as what portion of profits could or should be taxed in the jurisdictions where clients or users are located (“profit allocation”). The Programme of Work presents the technical issues that need to be tackled to enable a coherent and concurrent revision of the profit allocation and nexus rules.

The second pillar addresses the design of a system to ensure that multinational enterprises in the digital economy pay a minimum level of tax, to provide countries with a tool to protect their tax base from profit shifting to low/no-tax jurisdictions. The Programme of Work focuses on the work necessary to develop a global anti-base erosion proposal that would, through changes to domestic law and tax treaties, provide jurisdictions with a right to “tax back” where other jurisdictions have not exercised their primary taxing rights or the payment is otherwise subject to low levels of effective taxation. The Programme of Work also explores the potential for impact assessment and economic analysis of the proposals; the organization of work; and the role of the Steering Group in steering, monitoring and coordinating the Programme of Work.

Presenting the Programme of Work to the G20 Finance Ministers, Gurria mentioned that the broad agreement on the technical roadmap must be followed by a strong political support toward a solution that maintains, reinforces and improves the international tax system. He stressed that the health of all economies depends on such a solution.

The G20 Finance Ministers and Central Bank Governors’ Meeting took place from 8-9 June 2019 in Fukuoka, Japan. [OECD Press Release on AEOI][Preliminary AEOI Analysis][OECD Press Release on the Programme of Work][Publication: Programme of Work to Develop a Consensus Solution to the Tax Challenges Arising from the Digitalisation of the Economy]